Selecting the right coverage for your car

Knowing the basics of car insurance, which many people are ignorant of, is quite important in determining the type of car insurance that suits your requirements.

Types of auto insurance vary from one country to another.

In the United States and Canada, for example, car insurance schemes are divided into four categories. The most important category is called third-party liability, which is mandatory in both countries.

If you are at fault in an accident, the third-party liability policy covers both physical injuries and property damage caused to the other party, including your legal bills.

The second type includes both collision and comprehensive coverage. If you are involved in an accident, collision insurance covers the cost of repairing your vehicle up to its cash value, while comprehensive coverage includes damage to your car that was not caused by an accident, such as from fire, vandalism or natural disasters.

Both collision and comprehensive packages generally carry deductibles or the portion you have to pay if your car is damaged.

The other type of car insurance is called medical payment (MedPay) and covers both the driver's and passenger's medical expenses. This coverage -- which may provide financial compensation for dependents in the event of the insured person's death -- is also known as accident benefits.

In most provinces in Canada, this coverage is mandatory in addition to the third-party liability.

The latest option for car insurance is called uninsured motorists (UM) coverage. This covers the event that you are the victim of a hit-and-run driver, or if the other party does not have auto insurance.

In the United Kingdom, there are three main categories of car insurance, including third-party liability, third-party-fire-and- theft, and comprehensive.

As implied by its name, the third-party category only covers the insured person for claims made by the third party -- for physical injury or damage to their property or vehicle. While, third-party-fire-and-theft, also covers damages due to fire or theft.

Compressive coverage includes both the third party's claims and damages to the insured person's car.

In Indonesia, there are two standard car-insurance categories -- comprehensive, and total-loss.

The comprehensive category is similar to the comprehensive insurance applied in the UK. In Indonesia, this insurance includes medical costs but excludes damages caused by Riots, Strikes and Civil Commotion (RSCC), or natural disasters. Comprehensive coverage can be, for example, extended to cover RSCC or floods, but with an additional premium.

Additional car accessories are not covered by the standard comprehensive policy. For additional accessories to be covered, you are required to pay an additional premium.

The premium for standard comprehensive coverage, which is also called all-risk coverage, is around three percent of the cash value of the car. If you include RSCC in the contract, you are generally required to pay another one percent of the cash value of the car.

For this type of insurance, car owners are required to pay deductibles ranging from Rp 100,000 to Rp 500,000 for each accident. The deductible is the clause in an insurance policy that relieves the insurer of responsibility for an initial specified cost. If the amount claimed is below the amount of the loss specified in the clause, you have to pay for the damages yourself.

Unlike comprehensive coverage, total-loss coverage provides compensation only in the event that your car was stolen, caught on fire, or was seriously damaged in an accident. The compensation is given when the amount of the claim reaches 75 percent of the cash value of the car. This packages does not cover damages caused by RSCC or natural disasters.

The type of car insurance that you choose depends on the risks that you take and how much you are willing to pay. Comprehensive coverage will cost you more but offers greater protection. -- Hendarsyah Tarmizi